UPDATE: D.A. Davidson Lowers PT on Schnitzer Steel Industries Following Reduced Estimates

In a report published Thursday, D.A. Davidson analyst Brent Thielman reiterated a Buy rating on Schnitzer Steel Industries SCHN, but lowered the price target from $36.00 to $32.00.

In the report, D.A. Davidson noted, “Difficult operating conditions prevail for the Metals Recycling Business (MRB). Unit margins are expected to be lower on a sequential and year-over-year basis, as prices for ferrous scrap declined throughout the quarter. While it appears Schnitzer was able to lower purchase prices in response to lower market prices for ferrous scrap, the impact of average inventory accounting results in expected margin compression for the quarter. In response to Q3 expectations and ongoing softness in market conditions, we are reducing estimates. The impact of falling ferrous prices exaggerates pressure on quarterly margins and we believe Schnitzer (and others in the industry) has been able to flex purchase prices to some extent. However, a soft market and continued tight supply compels us to once again lower forecasts. Integration/start-up costs in Auto Parts should ease in fiscal 2014 while incremental ferrous volumes in Canada should also contribute next year. As proven in recent years, we believe Schnitzer is capable of much stronger margins and earnings with some demand tailwind, even within a flow constrained environment.”

Schnitzer Steel Industries closed on Wednesday at $26.00.